Bank of America happily paid a dime on the dollar it owed the US and me taxpayer. Where have you gone Judge Rakoff an helpless nation turns it self away, again.

Thus, taxpayers were owed $4,427 billion for the guarantee. They got $425 million. That is less than 10 cents on the dollar. Just because you don’t burn down your house, the insurance company will not give you a ninety percent refund of the premiums.

2009-09-16- Cumo and Board to Talk:

Just a day after Judge Rakoff has rejected the settlement deal between the SEC and Bank of America, Andrew Cuomo wants to have a little yikittie yack session with the Bank of America board over the disclosure related to Merrill bonuses.

Bank of America’s board of directors will be hauled into the New York Attorney General’s office to explain what happened as the bank struggled to close its acquisition of Merrill Lynch.

2009-09-15- 2009-The Judge Says No Deal:

No sooner had the cozy little deal cut by the lapdog SEC and Bank of America just got nixed today by Judge Rakoff,

Judge Rakoff has rejected the settlement deal between the SEC and Bank of America. He clearly wasn’t happy with it to begin with, and subsequentbriefs from the two parties did nothing to allay his concerns. At the end of the day, he hated the idea that B of A shareholders, on whose behalf the SEC actually brought the case, would end paying the fine for executives’ wrongdoing.

The attorney general is preparing civil charges against some of the Charlotte, North Carolina-based bank’s executives, including perhaps “some of the very highest-ranking,” according to a person familiar with the probe.

“Individuals are at the heart of what the attorney general’s investigation is looking at,” according to the person, who requested anonymity because the probe is ongoing.

Shows that one self agrandizing New York State attorney general, trumps an entire federal lapdog agency.

2009-07-17- Q2-2009 Earnings Report:

Bank of America lumbers with the twin loads of mortgage rot from Countrywide Financial and Merrill Lynch, but with a number of one off items still managed to $3.2 billion second quarter profit. There were no direct writedowns to mention, but there were several other distresses. The home loan and insurance unit lost $725 million, card services swung to a $1.62 billion loss, corporate loans declined $7.8 billion and assets no longer collecting interest rose to $30.98 billion. Debts the bank doesn’t expect to be repaid jumped to $8.7 billion.

The banks are becoming more sophisticated with their cash raising and Bank of America is no exception benefitting from the shadow bail out system issuing more than $40B in Federal Reserve backed debt.

Our sum will not include number 8 since the bank can still repay it, but we don’t count on that.

We now sum 1-7 to get $251.9B

2009-05-07-Stress Release:

Bank of America reportedly passed the FED’s stress test to see if it was adequately capitalized, but regulators said it needed another $34 billion to be adequately capitalized. The bank quickly claimed it could meet the $34 billion requirement.

In acknowledging the need to meet regulators’ demands, Bank of America said the government overestimated the bank’s potential losses and underestimated its potential earnings power. The government estimated Bank of America, which has total assets of $2.3 trillion, could sustain losses of $136.6 billion in 2009 and 2010 in a more severe downturn, but cautioned that number wasn’t a projection but a “what-if” scenario.

“Frankly we think that scenario unlikely and looking like less and less of a possibility every day,” Lewis said in a conference call with analysts, adding he believes the economy has hit bottom.

Frankly we have heard truths and lies from Ken Lewis before, and they usually come in the same breath.

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2009-04-21- Q1-2009 Earnings Report:

Bank of America reported in the theme of the credit bubble past, namely focus on the profits, and burn the losses, but when the the smoke clears what’s left for fiscal Q1 2009, is a booked profit of $4.2B on mixed in with a $7B writedowns. The profits however are unsustainable coming as they do from old familiar sources, stock sales,an SFAS 157 accounting gain on the decrepid debt of Merril Lynch.

What the profits are related to is one time profits on trading gains, proceeds from costly and divisive acquisitions of Merrill Lynch and Countrywide Financial. The bank dumped $2 billion worth of it’s holding in China Construction Bank, Countrywide contributed mortgage refinancing volume and Merrill Lynch tacked on another $2 billion by seeing the value of it’s structured notes take a beating.

The banks are becoming more sophisticated with their cash raising and Bank of America is no exception benefitting from the shadow bail out system issuing more than $40B in Federal Reserve backed debt.

Our sum will not include number 8 since the bank can still repay it, but we don’t count on that.

We now sum 1-7 to get $251.9B

2009-01-17 2008 Q4 Earnings Report:

Bank of America reported a fourth-quarter loss but full year 2008 profit which did not include $15 billion in losses from its newly acquired albatross Merrill Lynch. In more pedestrian matters, the bank charged off $5.54 billion of loans as uncollectable and increased loan-loss reserves to $8.5 billion. The bank now acts as a cash conduit from the Treasury to Merrill Lynch, whose buyout is nothing more than a bailout in drag we reckon. When that bailout began to drag the bank down, Bank of America pushed back.

Now the largest U.S. bank by assets, Bank of America posted a fiscal fourth-quarter 2008 loss of $1.79 billion last week, its first since 1991, and received $138 billion in emergency government funds in addition to $3 billion from the sale of China Corp. shares.

We now sum 1-4 +6+7 to get The Bank of America’s current Pain Factor > $200B

2009-01-16- Bank of America gets Bailed Out Again:

The Treasury gave Bank of America another $20B of TARP funds to help it digest the Merril morsel it swallowed on Jan. 1. Then the FDIC joined the bail-out party.

Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $118 billion of loans, securities backed by residential and commercial real estate loans, and other such assets, all of which have been marked to current market value.

Bank of America got another $10B taxpayer gift as the government bought $10B worth of preferred stock and warrants. This money was originally designated forMerrill Lynch, which Bank of America acquired and brings the banks take to $25 billion. The $25B big ties the bank for the lead with Citigroup, JP Morgan and Welss Fargo.

2009-01-07 Cashing Out China Construction Bank:

Bank of America kicked the new year off right, raising capital and dropping $3 billion bomb on China Construction Corp.

2009-01-01- Merrill Lynch a Done Deal:

The Bank of America and Merrill Lynch shotgun wedding became official today. From the Bank of America news release.

“We created this new organization because we believe that wealth management and corporate and investment banking represent significant growth opportunities, especially when combined with our leading capabilities in consumer and commercial banking,” said Bank of America Chairman and Chief Executive Officer Ken Lewis. “We are now uniquely positioned to win market share and expand our leadership position in markets around the world.”

Well they probabily created this new orginization because the Fedral Reserve held a gun to the banks head, but for better or worse the deal id done the dammage is coming.

2008-12-10 Enemy at The Gate:

In what could be the first flash point of the credit crisis, Bank of America is facing down angry peons whose job the bank threatens and whose paychecks the bank pilfered via TARP.

2008-12-03Bailout Bonanza:

Bank of America took its bailout bucks and used them to retain its employees, as advertised. Just kidding — in reality Bank of America cut 30,000 jobs and picked up $14.5 billion of sinking China Construction Bank.

2008-11-13Loan Mod Feeding Frenzy:

Morals are of no matter when profits and survival are on the line. The feeding frenzy on mortgage borrowers and taxpayers never ends, and Bank of America has just joined the fray.

2008-10-28- TARP (CPP):

The Capital Purchase Program (CPP) was no sooner open today when the nine biggest banks began tapping on it, hard. Bank of America was no different, hitting it for $15 billion.

Treasury created the Capital Purchase Program (CPP) in October 2008 to stabilize the financial system by providing capital to viable financial institutions of all sizes throughout the nation. With a strengthened capital base, financial institutions have an increased capacity to lend to U.S. businesses and consumers and to support the U.S. economy.

Bank of America has agreed to settle claims regarding risky option adjustable-rate mortgages loans originated by Countrywide Financial. The deal, which will cover nearly 400,000 borrowers, will apply to borrowers who took out loans with adjustable or fixed interest rates as well as those with option adjustable-rates serviced by Countrywide.

2008-10-07Q3 confession:

Bank of America finally started to tell some truth if only because in the face of a 68% profit dive and halving of the dividend it can be denied no longer. The bank couldn’t even play the beat the Street by a penny scam as it held its hand out for $10 billion in the face of $4.36 billion, and jump in loan loss reserves of $2 billion.

Start with the old total $51.3B: Add

Write-Downs/Charge-Offs: $5.6B + $4.36B = $ 9.96 B

Cash Raised: $10.0B <————-Stock Sale

TARP: $0.0

Gov non-TARP: $0.0

Level III Assets: $?.?B

Loan Loss Reserves: $6.45B up from $5.83 billion in the second quarter 2008.

We now sum all the distresses to get Bank of America’s current Pain Factor > $72.05B

2008-09-15-Gobbles Merrill Lynch:

Gobbles up or is force fed Merrill Lynch

Bank of America has confirmed it has sealed an agreement to take over Merrill Lynch in a deal worth around $50 billion.

In a statement issued Monday Bank of America said it would exchange 0.8595 shares of its stock, equal to $29 a share based on Friday’s closing price, for each share of Merrill Lynch.

It’s the second forced feeding of Bank of America since the credit bubble burst, the first one was the Countrywide protfolio of toxic crap.

2008-08-14options ARMs Explode:

Bank of America got rocked by a $24B big one dropped on them by Countrywide’s option ARM time bomb. If they still think they are going to flip a profit on Countrywide this year, then someone over there needs therapy.

2008-07-21Level With Me for Q2:

Bank of America reported second quarter 2008 results that excluded $2.3B in losses and $3.7B in credit-related write-downs stemming from its merger with CountryWide. The bank reported that its net income fell 41 percent to $3.41B, down from $5.76B a year ago. Write-downs also fell substantially:

The corporate and investment bank earned $1.75 billion, a 3.2 percent increase from a year earlier. Writedowns on securities fell to $645 million from $1.47 billion in the first quarter.

So the bank is reporting second quarter write-downs of $645M due to CDOs and $575M to investment banking, totaling $1.2B in write-downs sans CounrtyWide for the quarter.

So the write down tally excluding CounrtyWide is $4.4B + 1.2B = $5.6B.

Let’s keep in mind that Bank of America tripled its loan loss provisions to nearly $6B.

Bank of Americas Pain Factor is $5.6B+ $0 + $39.7B + $6B = $51.3B

2008-07-08Level III With Me:

Bank of America, bloated with toxic assets of its own, will soon be reporting earnings with the added boulder of CountryWide around it’s neck. It will be interesting to see how the bank reports the extra baggage. All we know that according to the company’s May 2008 10Q, total level 3 assets equaled $39.7B with total level 3 liabilities at $11.4B for a net total of $31.4B of level 3 assets on the books.

Ken Lewis, BofA’s boss (pictured above), has admitted that things are worse than expected. But he insists the bank left plenty of room for error and that the deal remains “compelling”. It has a cushion of around $13 billion: the difference between the purchase price and Countrywide’s tangible book value. It remains confident losses will be within sight of that number. If so, it will get the franchise for a song and not have to raise more equity (on Countrywide’s account, at least).

Bank of America is in a full-blown crisis of it’s own making, but too much is being done too late. First, they stopped making the loans they never should have made and now they are drawing in the HELOCs that never should have been sent out.

2008-05-05 – Shotgun Wedding:

Bank of America just announced that the bailout wedding to Countrywide is still on.

2008-05-02 – Unsettling:

In case you didn’t know, the buyout of Countrywide by Bank of America was designed to bail out to Mozilo and Friends, not to help the badly-swindled Countrywide debt holders. The plan is going off quite smoothly.

2008-04-30 – Weighed Down Countrywide:

Bank of America’s ever burgeoning buyout of Countrywide is weighing it down. The deal was probably intended to insure that the continuous stream of mortgage payments flowed uninterrupted to the CDOs and SIVs of Wall Street’s Ponzi pool. The result is that $40B of troubled mortgages must now be dealt with.

2008-04-21 – Melt-Down:

Just as Bank of America is saddled with Countrywide, the bank reported its third straight quarterly profit decline, a 77% hyper-decline. The hit was on write-downs to subprime mortgage-backed CDO’s, and loan loss reserves. What else?

Results included $1.31 billion of trading losses compared with income of $1.66 billion a year earlier. This was driven primarily by $1.47 billion in write-downs of collateralized debt obligations, a security often backed by subprime mortgage loans, and $439 million for loans to fund leveraged buyouts. Trading losses were $5.15 billion in the fourth quarter of 2007.

Bank of America said the $3.3 billion increase in reserves was part of a $4.78 billion increase in provisions, to $6.01 billion, “due to rising credit costs — particularly in the home equity, small business and homebuilder portfolios.”

The new total including write-downs and net charge offs comes to $1.47B + $2.72B = $4.39B, but there is another running total mounting up:

The world’s biggest banks and brokerages have disclosed $288 billion of writedowns and credit losses since June because of collapsing prices in U.S. mortgage markets. They’ve raised more than $160 billion to replenish capital, with Bank of America tapping public investors for at least $13 billion after writedowns and credit losses that totaled at least $8.2 billion before today, according to data compiled by Bloomberg.

And still this ailing bank remains dangerously exposed to further subprime write-downs.

But the bank still has a lot of the toxic stuff left on its books, which could require it to put away even more capital. It still has over $13.4 billion in leveraged loans, nearly $12 billion in mortgage-backed securities, and nearly $9 billion in CDO’s left on its books. Those may need to be written down further if the economy flounders.

Gee I wonder what would make the economy do that?

2008-04-20- Decimated Earnings Result in Continued Liquidity Drains:

When Bank of America reports tomorrow morning, it is expected to show $5.44B in fourth-quarter trading losses. We will be on the lookout for $2B more in write-downs to subprime mortgages.

Bank of America’s profit tumbled 95 percent in the 2007 fourth quarter, in part because the bank was forced to write off $2 billion in bad loans.

Bloomberg reports in a long article on credit lines that Bank of America has about $406B of undrawn credit line commitments (or at least, did at year-end 2007). They are second only to Citigroup, which weighs in at a hefty $471B. Anyway, this is much worse a fact than it would seem in isolation, since now more than at any other time in living memory, borrowers need to draw down those credit lines (which is the main point of the article).

2008-02-21:

The world’s largest banks have unveiled write-downs and credit losses of at least $195B since the beggining of 2007, and next week Bank of America will reportedly take provisions to drop another $6.5B on the pile:

Bank of America Corp., the second biggest U.S. bank by assets, may take a record $6.5 billion provision in the first quarter to cover possible future losses in its home equity and mortgage portfolios, Punk Ziegel and Co. analyst Richard Bove wrote.

2008-02-21:

On top of getting saddled with Countrywide, the paltry $12B of estimated leveraged loan write-downs would probably not keep senior management of the bank up at night, so we will watch it for you.

2008-31-01:

Bank of America is in the thick of the present financial turmoil. In the company’s fourth quarter 2007 results released Jan. 22, the bank’s income plummetted 95% on the various write-downs and ratcheting-up of loss reserves. Quoting from the linked article:

Trading-account losses totaled $5.44 billion in the latest quarter. In the same period in 2006, trading-account gains were $460 million.

Provision expenses increased $1.74 billion in the latest quarter, largely because of a $1.33 billion addition to BofA’s reserve for credit losses. BofA’s provision for credit losses was $3.31 billion, up from $1.57 billion in the fourth quarter of 2006.

Write-downs on collateralized debt obligations totaled $5.28 billion in the latest quarter, which BofA says reduced its trading profit by $4.5 billion and other income by about $750 million.

For the full year, BofA earned $14.98 billion, or $3.30 per diluted share last year. That’s down from earnings of $21.13 billion, or $4.59 per diluted share, in 2006.

For the record, subprime-related write-downs at BofA were about $1.8B in the third quarter, and fourth-quarter guidance was for about $3.9B in further write-downs. Clearly, the bank “blew past” that level, much to the dismay of shareholders.

Remaining exposure (as per estimates prior to Q4) is about $16B for subprime CDOs, $2.8B in MBS, and $17.3B in direct subprime lending. That is not chump change, and certainly does not leave us bullish on the stock.

Assuming the deal goes through, Bank of America will find themselves the proud owners of about $90B in questionable loans, including about $30B in Pay Option ARMs (most of which borrowers are making only the minimum payments on). The rest is a mix of second lien loans. And then there are creative new forms of off-balance-sheet liability popping up in HELOC securitization, as HousingWire reports:

Buried in Countrywide’s $831 million fourth quarter write-down of residual interests, Moody’s said, was a $704 million charge related to “rapid amortization” on home equity line securitizations:

.. in those situations where losses on the loans in the securitization result in claims on the insurance policies supporting the securitization above a certain threshold or duration, the priority of payment shifts. In this situation Countrywide is reimbursed after the trust note holders, insurance providers and other parties to the securitization receive the cashflows to which they are entitled. This is referred to as rapid amortization.

The charge of $704 million represents a liability for losses on estimated advances Countrywide could be required to make on securitizations that have entered or are expected to enter rapid amortization status.

Oh, and by the way, Countrywide self-insured some unknown percentage of its mortgages with a product called “TAMI” (Tax-Advantaged Mortgage Insurance). This product allegedly (we’re not sure if this bore out in reality) shielded borrowers from some or all of the impact of PMI (normally needed when borrowers don’t have at least 20% down), generated increased commissions for brokers, and gave Countrywide more revenues to pocket. A win-win-win!

But it looks like the means of achieving all this was rather shady: they nominally eliminated PMI in favor of a higher loan APR (which is normally tax-deductible for the borrower), then essentially provided IOUs to themselves, thereby effectuating “insurance” on these loans.

One question apparently not examined very seriously when this scheme was hatched was what the impact would be to Countrywide if that insurance were to actually be needed (in the case where, normally, a third-party PMI company would provide payouts). So we wouldn’t be surprised to see “surprise” write-downs related to this product in the near future (if anyone has further details on the company’s TAMI-related exposure, please let us know).

We’re not sure why Bank of America would want all this exposure, but CEO Ken Lewis did say they did the “mother of all due diligences” on this deal, so perhaps they know something we don’t. To us, it looks an awful lot like the company’s chieftans are letting visions of world domination get the better of their good judgment. Maybe they’ll find something in the above they can use to invoke the $160M cancellation clause on the deal (that’s a freebie, guys)!

In terms of job impact, BofA laid off about 3,000 people last year (around 500 of which were from corporate and investment banking). 650 more jobs were cut on Jan. 15, 2008 (mostly related to structured products), and 20 or so analysts were let go around Jan. 24. More details here.

4 Responses to “Bank of America”

I just read last week that B of A is going to consider forgiving a portion of the mortgage payoff for homeowner that are facing foreclosure. I wonder if they would be willing to buy me a new home, or if I just stop making payments I can start collecting some of the gift funds…